If you've been looking for a way to get money quickly without going through a credit check, one option you've likely come across is a title loan. But what are car title loans? And is getting one the right move for your situation? This guide will cover everything you need to know about what are car title loans and how they work.
There are essentially two categories of loans, which are secured loans and unsecured loans. The way these two categories differ is in their collateral, or lack thereof. Secured loans have a piece of property owned by the borrower attached as the collateral, whereas unsecured loans are only backed by the personal guarantee of the borrow.
A title loan fits into the secured loan category because you must use your car as its collateral. The good news is that you will still have your car while you're paying back your title loan. To protect themselves, the lender keeps the title to your car during that time. They give it back upon repayment, but if you default on the loan, the lender can repossess your car.
The process of getting a title loan is known for being very quick and easy. Here's how it works:
The exact rules and regulations covering a title loan will depend on what state you're in when you get the loan. The only federal guideline is that anyone borrowing a title loan needs to be at least 18 years old. Other than that, states make the rules, which means title loans Austin can work much differently than title loans Miami.
You obviously need to meet that age minimum of 18 to get a title loan. Other than that, you must own a car, the title must be in your name and that title can't have any liens on it.
If you meet those requirements, then it's all a matter of your car's value. The lender will use the following factors to assess how much your car is worth:
Lenders typically set their maximum loan amounts at anywhere between 30 and 50 percent of the car's full value, although some states also have maximum title loan amounts.
The lender needs to see both your car and your car title before issuing the title loan, and your ID to check your age. Since you'll need to show them the car title and let them hang on to it during the loan's term, you'll need to get a replacement title first if you've lost yours.
There's never a credit check required to get a title loan. In some states, lenders are required to check your income to ensure that you can repay what you borrow.
Title loans are intended for short-term use. The most common term length for a title loan is 30 days. There are a select few states that have longer minimum term length requirements, though.
The end of your title loan term is also your payment due date, when you need to pay the full title loan amount. However, one benefit with title loans is that the repayment terms are fairly flexible. If you don't have enough money to pay in full, you can usually get a title loan extension by paying any costs you've incurred on the loan – this would be any interest and fees. You don't need to worry about paying the loan principal.
An extension allows you to start a new term. You'll have whatever the unpaid loan principal amount is, plus potentially interest and fees for the new term.
Some states have limits on title loan term lengths. It's important know what your state's limit is, because when you reach it, you'll need to pay in full for your remaining title loan balance.
When it comes to title loan interest rates and fees, that's another area where it all depends on the state. Many states leave that up to lenders and borrowers to handle and don't put any restrictions in place. Texas has an interest rate limit of 10 percent on its title loans, although it also allows fees, which means the total cost of a title loan can be more.
Now that we've answered the question of what are car title loans, we'll close this guide by explaining when a title loan is the right choice.
Title loans are ideal when you need money right away, especially if you don't have the best credit and your loan options are limited. You just need to make sure that you can pay back what you borrow, hopefully by the end of the first term to avoid paying any more than necessary.